Facebook was just a PARTIAL Scam, Venture Capital is ALIVE, and Equities are NOT Dead!

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  • on May 27th, 2012

The only scam around the Facebook IPO was the time our networks devoted to the event. The only scam to date around Twitter was the business media (WSJ, NYTimes, Bloomberg,Reuters) talking about a hedge fund that could make money from tweets (Derwent Capital). That hedge fund is already closed and if you follow anyone with four days of investing experience, you would have laughed at the idea of it. Here is my post from last October.

There are no quick ways to get rich for the masses but there are many ways to get poor quick.

Fading the front pages of media is one of the great ways to make long-term consistent money. It is not a skill you can pick up in one reading of the weeklies and dailies. It takes time.

The media is dead wrong these days about the death of equities, the death of VC and Facebook as a scam IPO. America needs its’ terrorists and today they are Facebook’s CFO, $JPM, $MS and The Nasdaq.

The Facebook IPO was NOT a scam. It was the largest IPO ever. Shares were coming at the Nasdaq from all angles – 100 lots, 1 million lots, odd lots. Everybody who wanted a share got one. The bankers made the ‘long tail’ happy for once and because of that Facebook maximized their cash hoard. Definitely not perfect, but hardly a scam.

Now, just a week later, we have the ‘death’ of Facebook. All wrong!

What we are witnessing is an ‘outlier’ event. We went from Microsoft and some russian dude being insane to have invested at a $15 billion valuation, to Ivan’s grandma in Bulgaria begging for an IPO allocation.

Outliers break things. The breakage creates opportunities. Mark Cuban argues that Facebook has peaked but is long $150,000 shares in the meantime. That’s beautiful.

Equities are a means to an end…a tool.

My daughter (14 years old) has asked me to buy some $FB shares tomorrow. How is that a death of equities? Her last two ideas were homeruns about 5 years back…Chipotle’s ($CMG) and Apple ($AAPL). We sold here $AAPL recently and her $CMG too early (my fault). Like any good tycoon, she never lets me forget that sale. She may flip Facebook at $38, but she may have to hold it and buy more in the mid 20′s. Rachel thinks equities are magical. Rachel has learned that winners take their damn time. Rachel invests in products she uses and will let me know when the experience fails her. In the meantime, while I worry about the mobile transformation of Facebook’s products, I will watch for a catalyst like Facebook credits expanding in scope. It should happen.

My daughter is not a big sucker for consumerism. She is gluten free for one thing. We live on an island where she has one season of clothing. She has a bike and can walk to school. The Kindle is her go to gadget. Electronic books are her largest expense. As Chris Dixon points out in his recent post, Rachel is part of the ‘experience economy‘. Rachel and I talk at length about experience ideas for the companies and products she loves.

My son Max is a polar opposite and asks for everything. He wants to buy and hoard. He has three bikes (one with snow tires…you never know he tells me). He has clothing for an Everest Climb. Surf stuff, golf stuff, skate stuff…With tomorrow’s purchase of $FB for Rachel, their equity accounts will finally differ.

I set both their watchlists up on the Stocktwits iPhone app and within minutes, Max’s list was filled with Netflix, Starbucks, Van’s (he can’t find a ticker), Quicksilver, Jamba Juice, Tilly’s, Nike and who knows what else. He has consumer watchlist fever. I imagine he will look at his Fidelity account monthly and change his mind a lot based on the equity value. I will have a lot of work to do with him to teach him how to do less, yet not be apathetic towards his actual investments.

A few weeks ago I bought them both some $EBAY and $NKE and as of today, those are the only two stocks in their account.

I don’t like Facebook having $16 billion of our capital. History repeats itself. Facebook will get protective, political and with all that money…dangerous when they get paranoid. At best, middle managememt will work their magic over a real long period of time. But, the Company will be with us and thrive for decades though so I see no reason to predict or bet on it being a $15 stock anytime soon.

Lucky for you, you can seek growth and take risk yourselves and stay out of their way.

The remaining venture Capitalists will be doing the same. Mark Suster has a detailed blog post (I jokingly called it the first book I have read in years) on how this is the ‘Morning for Venture Capital‘. I know some pretty good Venture Capitalists and I do not see them hurting. It feels like morning to me as well for that smart group of survivors.

In the last year I have been long software stocks that have doubled and tripled and been acquired ($ARBA $LPSN $RNOW) . No ‘big data’ feeds, no inside information or Bloomberg machines were necessary. I used, price, volume, social tools and the social graph I have tended to since 2005. You can accelerate yours by globbing onto mine. That is ‘birth’ of markets and opportunities, not ‘death’.

Tuesday is just as good a day as ever to begin to invest, begin a career in the equity markets or pursue a career in Venture Capital. It is your commitment to your goals that matter and your angle of attack. Start building domain experience around your passion today!

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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